Crude oil saw its 2-day rally come to an abrupt end yesterday afternoon when the API US crude oil inventory report showed another big increase in excess supply sloshing around. This has knocked WTI in particular back down overnight. Oil markets may remain active and volatile through the morning with the upcoming DOE weekly oil and gasoline storage reports creating another potential opportunity for trading.
Energy stocks may also be active today, and some potentially could decouple from the oil price on takeover speculation. Royal Dutch Shell’s £47B mega merger offer to purchase BG Group (British Gas) has the potential to kick off a worldwide round of consolidation in the oil and gas sector. With the oil price having crashed, there are a number of reasons for companies to merge again including building scale to cut costs, companies in financial trouble may be looking to get taken over while others may be looking to make opportunistic moves. We also could see a significant increase in deals for properties and prospects in the coming months if not whole companies.
In currency action today, USD is dropping back once again heading into today’s FOMC minutes. The minutes may provide more colour on why members cut their GDP, inflation and fed funds forecasts and may provide a reminder that interest rate liftoff could be pushed back. AUD and NZD have benefitted the most from the USD pullback as they continue their dance around parity. NOK and CAD are benefitting from higher oil prices this week even though crude has dropped overnight. JPY and GBP are both up on indications that their central banks are unlikely to ease further and could eventually swing toward the neutral or more hawkish side.
EUR is relatively underperforming, dragged down by the ECB’s ongoing QE program. Comments yesterday that it could cut the program short if inflation rose were ignored or quickly dismissed. The unsettled situation in Greece doesn’t appear to be helping either with Greek PM Tsipras meeting with Russian President Putin today, reminding the EU establishment that the country has other options.
Royal Dutch Shell has made a takeover offer for BG Group (British Gas) worth about £47B through a combination of cash and shares that would give BG shareholders about 19% of the combined company.
Economic reports released overnight and this morning include:
Japan monetary policy
decision no changes to interest rate or QE as expected. 8-1 vote, dissenter called for a reduction in the annual QE purchase target to ¥45T from ¥80T.
API US crude oil inventories 12.2 mmbbls vs previous 5.2 mmbbls
Germany factory orders (1.3%) vs street 0.5%
Eurozone retail sales 3.0% vs street 2.8%
Economic reports due later today include:
10:00 am EDT US crude oil inventories street 3.2 mmbbls
2:00 pm EDT US FOMC meeting minutes
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